Say you went to your sister and told her, if she gives you a dollar to invest today, you will give it back to her on Tuesday next week and she will get $1.25. Then you go to your other sister and tell her the same thing only you will give her $1.25 Wednesday. Then you go on to your dad and every person you know and tell them the same thing. As you’re going around asking for money from other people you know, you give your first sister her $1.25 and she’s happy to have twenty five cents extra just for letting you invest her $1. So she says, why don’t you keep my dollar and invest it some more? So you say, OK.

But the thing is, you weren’t really investing it were you? You were just using other people’s money to make it look like you are earning money for them. Do you see how you will eventually run out of money especially if they all ask for their money at the same time?

So she answers, Yeah, but can’t I just ask more money from more people? Yeah, you can do that but what if you ran out of people to ask and also ran out of time? That’s what happened to Bernie Maddox and that’s why he’s going to jail.

She then said, but they said he still has millions of dollars and he’s not really in jail. True.

About $68 billion lost summed up pretty nice!

The are a couple of lessons in this:

Know what you are investing in AND There’s no such thing as a free lunch!

You have to know where your money is going. If not then you are asking for trouble. From what I’ve been hearing people were throwing their money at Madoff so he could invest it. They didn’t care how he did it so long as they got back huge returns. I feel horrible for those people who lost their retirements and for all of the charitable organizations that were hurt. But you have to ask the big questions and in this case the questions is Where is the money going to get those returns?!?

It may not be fun learning about personal finance and investing but a little knowledge goes a long way. Sure it’s fun to say you’re getting 15% every year on your investment but you have to questions how!

I recently brought up the question of whether we now need 8-12 months expenses saved rather than the old three to six months that used to be convention. I think in these economic times, where we are seeing unemployment hitting rates we haven’t seen in decades, that three to six months isn’t enough.

I received a lot of great comments on the article. Many agreed that 8-12 months expense savings is a good idea while others agreed that we need to re-evaluate how much we have saved but that 8-12 may be reaching. Some questioned if it was even possible or practical.

A big question that comes up: How does a person save up 8-12 months of expenses?!?

Let me first say I know it’s tough saving even 3-6 months of expenses. I wouldn’t be surprised if most families don’t have even 3 months expenses saved no less 8-12 (please prove me wrong!). But with unemployment rising it’s something we all have to think about.

I think it can be done!

The sooner you can put together your expense savings the better. But that doesn’t mean you have to do it right this minute. Don’t stress out completely because you can’t cover a year’s worth of expenses right now. But at the same time look at what you do have socked away and ask yourself if you could save more, even if it’s only a little bit. Work your way up. Do you have three months expenses saved up? No? Set that as your goal. If you do have three months work your way to six months expenses. Squirrel away until you reach your goal. If you never need it then great but should you have to use it you will be happy for everything you could save.

But does it have to be 8-12 months saved?

You need to look at your own situation. Here are some questions to ask yourself:

What will happen if I lose my job?

Realistically how long would it take to find a new job at the same salary?

How much more will I need if I have to take a pay-cut?

How long can I support myself while looking for work?

How has my industry been affected by the economy? Are whole companies going out of business or is it growing?

How is your company doing? Are they hiring or letting people go?

What is the likelihood that I could get laid off (tough one to answer but be honest with this one. Most people think a company can’t do without them but in most cases they are probably wrong).

What savings do I already have?

What would I get in unemployment benefits?

Are there any other money sources you could tap if needed (Stocks, bonds)?

Would or could you work part-time until you find full-time work?

And here are some items to think about when figuring out your expenses:

What must get paid every month (mortgage, car payment, electricity, phone bill, water)?

What do you spend on food every month?

What will health care cost?

What costs will there be in finding a new job (transportation, resumes, dry cleaning, clothes, fax, phone calls).

What other expenses will you have (car maintenance, home maintenance)?

What do you actually spend every month?

What can you cut back should you lose your job (cable, eating out, vacations, etc…)?

How many mouths does your income support?

Be honest with yourself. You may find that you don’t need 8-12 expenses. But you’ll be better served to save a bit more than a bit less.

We recently put our home on the market to sell. Man, do we have a lot to do to get the place in ship shape! We have been busy for the past couple of weeks doing what we could to make the place look more appealing to a potential buyer. Living there for so long we didn’t realize how much stuff we had and how many little things could be fixed. I’d be lying to say we weren’t concerned about getting a good price in today’s market!

Our goal is to make our home look as clean, big, and attractive as possible without breaking the bank! Fortunately there are many things we can do to help achieve this.

These are inexpensive ideas to help sell your home:

Paint (@MoneyMatters) – We hired someone to paint most of the place for us. It wasn’t that expensive and it’s made the place look so much bigger and brighter! We used light, neutral colors that would be appealing to most (our prior colors were great but too dark for most people’s tastes). This could be done yourself to save more. We just didn’t have the time to do it ourselves (and we got a great deal on a local painter).

Replace Light Fixtures – We replaced our dining room, bathroom, and the bedroom’s light fixtures. We bought them at Home Depot and they weren’t that expensive. Combined with the new paint job, the apartment looks much bigger than before. Add to that we used fluorescent lights so we can tell prospective buyers that the light costs will be lower.

Remove Clutter (@nomorespending)- We’ve already removed all of our CD’s and their shelves as well as our books and bookshelf. It’s really opened up the place (I have a LOT of CD’s). Remove, give away, put in storage whatever you can. Get down to the bare minimums to make the place look as big as possible and let a buyer step in and imagine it as theirs. This will also help you when you move as you will have less to box and bring with you.

Clean Carpets/Wax Floors (@thepassivedad) – Renting a machine for the day to clean your carpets can be inexpensive. Same is true for a floor buffer. There’s also less expensive cleaners you can use that may require more elbow grease but can be as effective. If you’re able add no base board molding. Basically give a buyer the thought that they don’t have to do any work on the floors if they don’t want to!

Landscaping (@misformoney)- If you have a garden or lawn space do what you can to spruce it up and make it lively! New plants don’t have to be expensive and can make the front of your home look much more inviting!

Take Great Pictures (@pffirewall) – Your home will most likely be online somewhere for sale and you will need photos of it. Make sure the photos are good quality taken at the time of the day the light is the best. Wait until you have everything ready and use a good camera. If you have a friend who’s a photography buff ask him to come over and take a few shots for you. You want big and clean! I’ve seen people post photos of cluttered rooms that make me instantly go to the next listing on the site.

Re-Grout Wall and Floor Tiles - This sounds like more work than it really is. I’ve discovered it takes some elbow grease but doesn’t cost too much. And new grout will make your tiles look almost new again. Go ahead and take a close look at how dingy they may be… I’ve been slowly re-working the tiles in our bathroom!

Replace Old Sinks, Cabinets, Faucets – You can go crazy replacing these items and spend thousands for sure. But sometimes if yours are beat up and old an inexpensive replacement will look much better than what you have. New usually equals clean and that helps a buyer!

Replace Outlet Covers and Light Switch Covers – Over the years these can get beat up and dirty. But they cost little to replace. Put these in after you have painted to keep them clean.

De-Personalize Your Home – Put away all of your photos and pictures. You can leave a few up to display but you want a buyer to walk in and imagine the place as theirs. Seeing your face all over doesn’t help that. It also helps remove the clutter too!

Read Magazines/Watch TV (@nodebtplan)- No, I’m not saying you should sit around and be lazy. What you can do is look at what homes look like in advertisements and shows. There are also plenty of home shows on TV these days to give you ideas as well. You can get a good idea of what a model home should look like.

We Need More Light! – When you are showing the home turn on the lights to make the place look bigger even if it’s during the day!

Bake Before a Showing – This one is a bit cliche but you would be amazed how well it works! We had friends over and one was helping me install a new dining room light. At the same time my wife happened to be baking a cake. It smelled amazing and really made the place feel “home”-ey. (And really how much do those instant bake cookies cost?)

Build a Website – A friend mentioned that when he was selling his Manahttan apartment he put up a quick website with some pictures and contact forms. Six months hosting isn’t very expensive and a lot of hosting companies will give you a free domain name and web site kit. He ended up selling the place himself! You can also list your home on Craiglist.

Clean, Scrub, Sweep, Repeat – Clean like a madman. Then go do it again. Then ask a neighbor or friend to point out what still seems dingy and hit the cleaners again. Make the place sparkle! The cleaner the better. A clean place tells a buyer that you take care of the home (and it makes it look great).

Empty Those Closets - As best you can clean out the closets. Again, live with the bare minimum that you need and get those closets looking as big as possible. Buyers will want to see how much of their stuff they can put in them not how much of yours!

Visit Other Homes In Your Area – Take an afernoon and go visit the open houses in your area. See what their homes look like and what they offer and the price they ask. If you see a similar place as yours take note; this is your competition and you want your place to look better! Is it cleaner? Newer? You may be surprised to find out it won’t take much to make your place look nicer.

Replace the Toilet Seat – Seriously! People will notice that it’s sparkling clean which will get you big points. Either they don’t need to get a new one themselves or they believe you keep things super-clean, you win.

Yes, it takes some work on your part to do these things. But if it will help you sell then it will more than pay off!! A couple of years ago you might have had a bidding war for a home that wasn’t all done up. But in today’s economy you have to put your best foot forward just to get the sale! Don’t let something small keep a buyer from wanting your place.

Last week President Obama signed into law the American Recovery And Reinvestment Bill, otherwise known as the 2009 Economic Stimulus. A big question in the minds of the average American is How can it help me?!?

Here are some ways the American Recovery and Reinvestment Act of 2009 can help you:

Unemployment – In 2009 you will not have to pay pay taxes on the first $2400 in benefits you receive.

Social Security – Some social security recipients will receive a $250 refundable tax credit mailed to them within 120 days of the bill’s signing.

Pell Grant – The maximum benefit for Pell Grants will rise to $5,350 in 2009 and $5,550 in 2010.

More Liberal 529 Plan – In 2009 and 2010 students can withdraw money or computers and related technology such as educational software or internet service for students living at home.

Transportation Accounts – Your employers are able to increase transportation spending accounts up to $230 a month. This is money you can have set aside from your paycheck tax free. (Check with your employer to see if they participate and raised their limits.)

New Car Buyer Tax Deduction – In 2009 you, if you purchase a new car you can deduct the state, local, and excise taxes off of your federal return.

Higher Tax Credit For Education – A credit of up to $2500 of college tuition and related expenses in 2009 and 2010. You need to spend at least $4000 in the year for the credit and 40% is refundable (which means you can qualify for 40% if you don’t have taxable income).

First Time Home Buyer Credit - A first-time home buyer credit of 10% of the purchase price of the home up to $8,000 for homes bought in 2009.

Health Insurance Help for Laid Off Workers – If you were laid off between September 1, 2008 and December 31, 2009 the government will subsidize 65% of your COBRA premiums.

The American Recovery and Reinvestment Act is going to be expensive for the country but at least people get to see some of it.

Excuse Busters For Not Having A Budget:

You Don’t Want To Be Told What To Do – Really? You don’t want something to tell you how to spend your money. Well how do you like the bills you pay every month? Or looking at your bank account and being told you don’t have funds to cover an expense? Truth is, when you have an effective budget you are in control of your money and you can see what you are doing. The only one doing the telling is you with a budget.

You Feel Constrained - Yes, a budget tells you how much money you may have for different expenses. And you may not be able to spend indiscriminately. But the truth is a budget can be liberating! You know exactly what you can afford and you know where your money is going. When you know your expenses you can re-allocate your spending to fit your needs and wants. Without a budget it’s more like a high wire without a net.

You Can’t Do What you Want – Not the case. A budget will tell you what you can afford. With a good budget you can change your spending to allocate more money for things that are important to you. You cut out the frivolous spending for things with more purpose.

Can’t Give up Your Ego And Admit You Need to Control Your Spending – Get over yourself and take a good look at the bills you have and the stress you go through every month to pay them. Look at how quickly your paycheck disappears and how your bank account dwindles. You want the best stuff, I get it. But you have to reign in your spending. The lifestyle you are trying to live is an illusion and it’s much healthier for you to truly live your life instead. Don’t worry so much about appearances because appearances lie. Be!

Your Expenses Are Too Big To Get your Head Around – It can be a daunting task to start a budget if you haven’t done one before. Start small. Gather up your bills. If you don’t have them then as they come in write down their totals in a spreadsheet (or a notebook). After you have put together your expenses, compare that to your income (for most that’s you paycheck stubs over the month). Once you can see you expenses and income you can start to go more into the details. Start holding on to receipts as you spend and mark them down. Track down the little expenses. Take a look at those bills and see what they are made up of. The point is, if you want to start a budget you can. Don’t think you have to do it all at once. For most a budget is work in process.

You’re Afraid – Liberate yourself from this fear. If you are afraid then you probably think your expenses/spending are out of control. It may not be as bad as you think. Even if it is, once you can put a definite figure on it you’ve taken a step to start attacking it. It’s not going to get better until you decide to do something about it and a big first step is starting a budget!

It Takes Too Much Energy And Time – Maybe at first it takes some time. But once you know your recurring bills it gets a lot quicker. Get yourself organized and you’ll find it doesn’t take much time at all (personal finance software like Mint, Mvelopes, or Moneydance – review can help). And you will also find that tracking things like your taxes expenses will be easier since you’ve been keeping track of spending all year.

It’s Depressing – It doesn’t make me happy all the time to see what money I have left for the month. Or to see how much I pay out. But a budget is empowering. With you budget you are in control and you see exactly what you spend. What makes me happy (not depressed) is knowing that I have a handle on my money. It’s a powerful feeling in fact!

You Manage To Get By Without One – That’s great if you get all of your bills paid and still have money left over without a budget. You might even have money going into savings and a retirement account. Some people are naturally good at keeping track. But if you put together a budget you may find lots of small “money leaks” that you weren’t aware of previously. You may find that your savings and such will grow considerably when you see exactly what your spending is. From personal experience, my wife and I were surprised to see how much we spent on the weekends on little things. Had we known then what we know now we’d have much nicer savings!

Your Spouse Isn’t On the Same Page As You – You need to sit down and talk to your spouse and have a serious money talk. A budget doesn’t mean you can’t use money any more it just means you know where that money is going and why. A budget allows you to align your goals for your family.

Hey, you know what? A budget isn’t that tough! Stop making excuses and get started on one. You just might find things are easier once you see where your money is going.

I was thinking about why more people and families don’t have a budget.

It’s really the thing to do to keep track of your expenses and income and make sure you don’t go over with your spending. I thought about all the different excuses I’ve heard and seen from people.

So why haven’t you started a budget? Here are some common reasons:

You Don’t Want To Be Told What To Do

A budget can tell you how much you actually have to spend and what you can afford every month. You don’t want to be told where your money has to go and you don’t want to hear that you can’t spend when you want.

A Budget Constrains You

You feel choked by the limitations of a budget. Can’t spend what I want on clothes. {Cough, cough.} Can’t go out for coffee drinks every day. {Choke.} The mere thought of a budget starts to make you feel walled in.

You Can’t Do What You Want

What fun is it to know you can’t afford to go out to eat four times a week? Who wants that. You want to be able to spend freely and do what you feel at the moment. That’s what freedom is, isn’t it?

Can’t Give Up Your Ego And Admit You Need To Control Your Spending

You refuse to believe that you have a spending problem. You’re living an illusion. Even though it causes stress you always find a way out of your financial messes without learning the lessons. When there’s a will there’s a way and you can spend what you want. Everything’s ok.

Your Expenses Are Too Big To Get Your Head Around

You want to have a budget but you don’t know where to start. You’ve tried to get a few bills together but the task seems too big so you end up giving up. You’re not organized enough to get everything together. You may not even know all of the bills you pay every month. It’s too much.

You’re Afraid

You don’t even want to see what your finances are! To actually put a number to your expenses would give you a heart attack (not literally but close enough). You know it’s bad but you really can’t stand to see the actual figures.

It Takes Too Much Energy And Time

You don’t have the time to put all of your receipts and bills together. You work a 9 to 5 five that’s rarely just that and when you come home the last thing you want to do is more work.

It’s Depressing

It just doesn’t make you feel good to see your finances in a budget. You would rather not put yourself into a funk so you ignore the idea of a budget.

You Manage To Get By Without One

Your bills get paid. Money goes into savings. You invest. What do you need a budget for? (I’ll answer that one in another post).

That’s nine excuses a person might not have a budget. Does one of these resemble you? Can you think of others?

Do you have an online high-yield savings account? If you don’t you need one!

Let me tell you why:

1. Brick and Mortar Interest Sucks

I just checked the interest rate on my savings with the brick and mortar bank I do my checking with.
Ready? 0.20% APY!

It used to be that banks would offer a decent interest rate on savings to get you store your money with them; not quite the case anymore!

2. Many High Yield Online Savings Accounts Offer Better Interest

I use 360 Savings for my online savings. You won’t be Bill Gates rich with their rates but it is MUCH better than what the average brick and mortar bank offers. As your saving go up that interest starts to get well…interesting.

3. Automatic Savings

Most online banks will let you set up automatic savings. What this does is pull a set amount at whatever time you set up to be pulled into your online savings account. This could be from your checking account or even from your paycheck if it’s direct deposit.

Why automatic savings? So you don’t have the opportunity to spend the money first then try to save! Even if it’s a small amount it will add up over time (and that money earns interest and so on…).

4. Bill Pay

Some online banks offer the ability to pay your bills from the site. Another option is using your routing and account numbers to set your account up to pay from on the site you have a bill with. For instance, we set up our car payment to pull from our online savings account. This way we don’t have to worry about having enough in our checking to cover the bill every month (we have more than enough in our savings to cover this).

Yes, you can do this from a checking account as well but the money you need to keep there won’t be earning interest in the meantime.

5. Out of Sight, Out of Mind

In a lot of brick and mortar accounts your checking and savings are accessible from an ATM. Falling short of funds in checking? Pull it outta savings. I don’t have access to my online savings at an ATM. As a result I don’t have that money staring at me every time I need an ATM.

My savings stays saved!

6. Relatively Easy to Access

So I can’t pull my savings from an ATM. That’s ok. If I should ever need it then I can have my money transferred to my checking in a few days or so. The money is still pretty easy to get should I need it but not so easy that I could take the savings for an impulse buy!

7. Use of Sub-Accounts/Multiple Accounts

With 360 Savings you can set up multiple accounts under one customer number.

Wanna save for a new car? Create another account just for that purpose. Wanna show your child about the power of saving and compound interest? Set up an account for her to put gift money in.

In fact you can set up automatic savings for any account as well. When my wife and I were engaged we set up an account to help save up for the wedding. The options are limitless!

8. Great spot for Emergency Savings

Some might say online savings isn’t liquid enough for emergency savings. I say it depends. For us it’s a great place to stash emergency funds which will also earn interest!

9. Great Customer Service

This one depends on who you use for your accounts. Again, we have been using Capital One’s 360 Savings for their high-yield savings for years.

Every time I’ve called I’ve gotten friendly, helpful people who were able to answer my questions and handle my needs without any problems. That’s a huge reason why we haven’t switched our account somewhere else with slightly higher rates. Knowing that my bank can handle any issue I have without being on hold for half an hour is important to me.

That’s just nine reasons. I’m sure there will be many more in the comments!

A high-yield savings account can be a great instrument if you are serious about building up your savings. Make sure you check the fine print for any account you plan before you sign up. Know what fees and money limits are involved and any penalties you might incur for taking your money out. Check online to see how well people like the bank’s service.

Disclaimer

Free From Broke is for general information or entertainment purposes only and does not constitute professional financial advice. Be smart and do your own research or contact an independent financial professional for advice regarding your specific situation.

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